They argue this is because index investing has inflated the value of some Wall Street stocks beyond justifiable levels, and further claim that there will be insufficient liquidity in a correction.

ETFs are more popular than ever because of their low-cost and simple structures, although some passive strategies are becoming more esoteric and expensive.

Investors have ploughed more into ETFs in the first seven months of 2017 than last year's record annual inflow.

Vanguard's quarterly ETF report, released last week, shows that the Australian market has grown to almost $32 billion and global equity ETFs are the biggest beneficiaries of new investment, capturing 40 per cent of all inflows this year.

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It is that simplicity that ETF providers rely on in challenging the claims of active fund managers, who range from Paul Singer to Howard Marks.

"We use an analogy when we try to explain to clients what ETFs are, and the analogy that we use is that of the shipping container. The shipping container is the wrapper of washing machines and hair dryers and global goods," says Jon Howie, head of BlackRock's iShares business in Australia.

"When you use that analogy, blaming ETFs for being the cause of some market event is like blaming shipping containers for a drop in GDP."

'Unfairly targeted'

Kris Walesby, head of ETF Securities Australia, says that the passive market has been "unfairly targeted" in some respects.

"Let's bear in mind that in America, where ETFs are biggest, they're still only 25 per cent of the entire market of trading. Three-quarters of the market is still actively traded."

And, he adds, active managers are not without their faults. "There's been a long legacy across the world where active managers – some of them, not all of them – but a lot of them are doing effectively index hugging. [ETFs] effectively wholesaled what was previously a premium market that didn't need to be premium."

People are observing the rational behaviour of ETF market makers in episodes of market volatility and conflating that with the accusation that ETFs heighten market volatility, he says.

"If a market has become very volatile, they will express the same ETF volatility," he says. "I don't think there's a situation where they could be more volatile than the underlying securities.

"What I'm saying is that if you have a world where the volatility is very low in the market, and let's say the spread is 10 basis points or 0.1 per cent [being the average for a market of hundreds of stocks], in a crisis situation the spread is 1 per cent. The market makers are exhibiting that through the ETF at the same time, therefore I need to be 10 times as protected on my spread."

That is just a mirror of market conditions, and "that's actually the proper functioning of a market maker," Mr Walesby said.

(The market maker is a participant on the exchange.)

Mr Howie argues that ETF selection is a form of active investment too.

"Active managers would argue that they are arbiters of value, they do enormously deep analysis to ensure companies that would be successful that their prices go up, and we would agree. We think active management is a core component of efficiently functioning capital markets."

ETFs "are a big part of investors making an active decision, to buy equities versus bonds, US companies versus emerging markets companies, all of those decisions are active decisions."